Individual Investors Getting Into Stocks: Vanguard CEO

CNBC

Monday, 2 Aug 2010 | 2:39 PM ETCNBC.com

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Investors are pulling assets out of money-market mutual funds and putting them into funds that invest in stocks as well as bonds, Bill McNabb, chief executive of The Vanguard Group, said on CNBC Monday.

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Vanguard Group led the fund industry with net cash inflow of $44 billion year-to-date, with Bill McNabb, Vanguard Group CEO.

"I think individual investors have tiptoed back into stocks," McNabb said. "Our target-date funds, for example, have seen very strong flows. I think it’s more of a balanced approach in that regard."

Target-date funds invest in a mixture of stocks and bonds depending on an individual's investment horizon. Investors are also moving into short and intermediate-term bond funds, he said.

Investors will keep that restrained approach until they have better confidence that the "system" is working, said McNabb.

"We’re going through a period of regulation unlike any we’ve seen in most our lifetimes, you’d have to go back to the 30s for this level of regulatory change," McNabb said. "A lot of investors are waiting to see how this all plays out."

Vanguard manages $1.4 trillion in mutual fund assets, including $17 billion in exchanged-traded funds. Recently the firm allowed investors to trade ETFs at no charge. The change wasn't made to allow faster trading in ETFs, particularly since Vanguard focuses on broad-based, highly-liquid funds, but to give investors a better way to evaluate the benefits of an open-ended mutual funds vs. an ETF, McNabb said.

ETFs may have played a role in the May "flash crash,"said to be a contributor to investor distrust in the markets.

"The cost equation was complicated by the very low commission charged in the brokerage service," he said. "So we eliminated that cost so someone can decide if an ETF is the best structure or is a traditional open-end fund a better structure really based on their needs as opposed to cost."